Three UK stock picks

Dundedin’s manager, Ed Beal, has done a commendable job in producing sector-leading share price performance over the past year, according to John Newlands, an investment trust analyst at Brewin Dolphin, the wealth manager.

But he is slightly concerned that the trust’s discount to net asset value is not as appealing when compared with its peers and that it is paying out in dividends more than it is taking in from its holdings.

“This overpayment is made possible by the presence of healthy cash reserves,” he said. “It has to be remembered, though, that dipping into reserves does deplete the overall assets of the trust and we would not like to see it used on a regular basis.”

An investment trust can trade either at a discount to its net asset value, making it cheaper, or at a premium, which makes it more expensive.

On the face of it, a trust trading at a 20pc discount looks like a bargain, but this depends on the reasons for the discount – it could be that the trust is dire and people are selling their shares. It could be that investors have just overlooked an opportunity.

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Mr Newlands said that while the Dunedin trust was of sound quality, he would currently favour Aberforth Smaller Companies – which has risen by 33pc over the past year – or Throgmorton Trust (up by 17pc), as both currently trade on double-digit discounts.

Three stocks Mr Beal does favour are funeral group Dignity, media company Euromoney and nanoscience developers Oxford Instruments.

The Telegraph Investor

Editor's comment:

Priced to be great value for new investors and those with large portfolios.